CFP Certification Exam Sample Paper : www.fpsb.co.in Financial Planning Standards Board

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Sample Paper – 1

Roger G D’Mello, aged 29 years, is working with a Multi National Company since December 2004. He has approached you, a CFPCM practitioner, for preparing his Financial Plan. He is staying in his own house at Ahmedabad. His wife Angela, aged 31 years, is a fashion designer. She has earned a net profit of Rs. 4 Lakh in FY 2008-09. They have a son, Mark of age 4 years (born on 12.02.2006), and a daughter, Stephanie (born on of 23.09.2009). Roger is also supporting his parents staying in their own house at Surat to whom he sends Rs. 10,000 p.m. His monthly house hold expenses are Rs. 30,000 p.m. (excludes his investments, payment of
premia and EMIs). Roger normally gets 5% increase in his gross salary year-on-year in the beginning of every financial year, apart from bonus. The effect for this year is yet to take place, though he has received a bonus of Rs. 3,31,680 for the year 2009-10. He has taken a family floater policy for Health Insurance involving an annual premium of Rs. 16,268 and a total cover of Rs. 15 lakh.

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Roger G D’Mello’s monthly salary :
Basic Salary : Rs. 42,000
DA (forming part of Salary) : 50% of Basic salary
House Rent allowance : Rs. 12,000
Transport Allowance : Rs. 3,000
Children Education Allowance : Rs.1,000 per child
Medical Reimbursement : Actual expenses up to Rs. 1,250 per month
Entertainment Allowance : Rs. 4,000
Couple’s Current Assets & Liabilities (As on 31st March, 2010 unless otherwise specified in foot notes)
Assets :
House : Rs. 35.00 lakh
Car : Rs. 3.50 lakh (Depreciated value)
PPF (maturity on 1st April 2017) : Rs. 2.90 lakh
Insurance – Money Back policy1 : Rs. 3.00 lakh
Child Plan – Life Insurance Co.2 : Rs. 12.00 lakh (Sum Assured)
Gold ornaments : Rs. 4.50 lakh
Equity Mutual Fund scheme : Rs. 4.85 lakh
Balanced Mutual Fund scheme : Rs. 2.25 lakh
Portfolio of Equity Shares : Rs. 3.95 lakh
Equity Linked Saving Scheme : Rs. 1.75 lakh
Bank fixed deposit3 : Rs. 2.50 lakh
Cash/Bank Balance : Rs. 0.75 lakh
Liabilities :
Home loan4 : Rs. 12.97 lakh (Principal outstanding)
Car Loan5 : Rs. 2.93 lakh (Principal outstanding)

1 Purchased on 25th October, 2006; annual premium paid Rs. 14,798
2 Purchased on Mark’s 2nd birthday for a term of 15 years; annual premium Rs. 41,374
3 Subscribed on 01.09.2008 @ 10% p.a., with interest credited quarterly to his savings account; renewed at same rate for one year on 01.09.2009 without penal provision for premature withdrawal 4Home loan of Rs. 17 lakh taken on 1st November, 2004 at a fixed interest of 7.5% p.a. for a 15-year term. 5 Car loan of Rs. 4.50 lakh taken on 1st April, 2008 at a fixed interest of 11.25% p.a. for a 4-year term.

1. To provide for higher education of Mark and Stephanie. Initial expenses at their respective age of 18 years, Rs. 3 lakh (current cost), and subsequently Rs. 2 lakh p.a. for the next two years, and Rs. 3.5 lakh
p.a. for the following 2 years.
2. Marriage expenses of Rs. 15 lakh (current cost) for each child at their respective age of 27 years.
3. Retirement corpus at the age of 58 years to sustain 70% of pre-retirement household expenses till his lifetime and 50% till Angela’s expected life.
4. A Bigger house valued at Rs. 50 lakh today, a year from now.
5. To build a separate fund for vacation expenses of Rs. 2 lakh (at current cost) every year 10 years from now so that the corpus so built is self-sustaining till the marriage of Stephanie.
Life Parameters :
Roger’s expected life : 75 years
Angela’s expected life : 80 years
Assumptions :
A. Regarding long-term pre-tax returns on various asset classes :
1. Equity & Equity MF schemes /Index ETFs : 11.00% p.a.
2. Balanced MF schemes : 9.00% p.a.
3. Bonds/Govt. Securities/Debt MF schemes : 7.00% p.a.
4. Liquid MF schemes : 5.50% p.a.
5. Gold & Gold ETF : 7.50% p.a.
B. Regarding economic factors :
1. Inflation : 5.50% p.a.
2. Risk free rate : 6.50% p.a.
3. Real Estate appreciation : 8.00% p.a.

Questions :
1) Before beginning work on Roger’s Financial Plan, you have drafted a document outlining the “Scope of Engagement” and sought Roger to mutually define and determine the activities that may be necessary
in order to proceed with client engagement. Roger asked you about relevance of such a document. In the context of Financial Planning Profession, you explain about the “Letter of Engagement” as a
_________.
A) professional requirement under Practice Guidelines of FPSB India
B) professional requirement under Code of Ethics of FPSB India
C) necessary legal requirement as per Contract Act 1872
D) document for his personal record
2) Roger has heard that a CFPCM practitioner is able to take care of the execution of all aspects of his Financial Plan, viz. Investments, Insurance, Tax Planning, Estate Planning, Retirement solutions, etc. He confirms with you the same. You advise him that:
A) This is not true about all CFPCM practitioners. The scope and limitation of the services of a CFPCM practitioner need to be disclosed in writing by him/her in the beginning itself.
B) A CFPCM practitioner can never be believed to take care of all aspects of a Financial Plan.
C) This is the right assumption which can be made about all CFPCM professionals.
D) A CFPCM practitioner can make a financial plan, various aspects of which need to be executed by experts in their respective fields.
3) Roger paid first EMI of Housing Loan on 1st December, 2004. There are no pre-payment charges after 5 years of regular EMI payments. He wants to foreclose his loan before he avails a new loan for his proposed bigger house. He plans to repay the loan in one lump sum on 1st May, 2011 after paying regular EMIs till 1st April, 2011. He wants to know the amount required then to pay off the existing housing loan. The same would be_______.
A) Rs. 12,01,704
B) Rs. 11,94,240
C) Rs. 11,77,598
D) Rs. 11,85,945
4) Roger wants to invest in ULIP, but he wants to be cautious before entering a long period of contract. As Per IRDA Guidelines on ULIP, if he wants to return the policy within 15 days free look period. What
amount would be refunded to him?
A) He would get the prevailing fund value subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.
B) He would get the refund of full premium paid.
C) He would get the refund of premium less commission paid to the intermediary.
D) He would get the prevailing fund value less commission paid to the intermediary.
5) Roger has not taken any type of insurance on the house property he possesses. The house was purchased in November, 2004 for a total cost of Rs. 19.20 lakh, of which the cost of land and construction was Rs. 9 lakh each, whereas other costs were Rs. 1.20 lakh. The cost of construction has
increased by 11% year-on year and the land prices have increased at a CAGR of 18% in the area where his house is located. You advise him to take an insurance for his house on reinstatement basis to the
extent of _________.

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